Graduate Loan - fixed or variable?

dimbles

In order to fund the rest of my final year, I'm looking to take out a loan. NatWest and RBS are both willing to lend to me on the basis of a future income (I start in September), and both will let me defer payments until then.

The only difference is the interest rate: RBS are offering 3.25% above RBS Base Rate (which I assume closely follows BoE BR), whilst NatWest are offering 8.4% fixed. I'm looking at a term of three years... which one would you choose?

I know it's an impossible question: what's BBR going to do, but I'd appreciate your opinions!

Cheers,

Sam

Rafter

Sam,

As long at the variable rate is tied to the Base Rate, which is pretty much must be given RBS is 70% government owned I would go with that.

You are taking a bet that the base rate on average will be lower than 5.15% over the period September 2009 to September 2012. Given that rates are expected to fall to 0.5% tomorrow I think this is a reasonable risk to take.

Presumably if you have a good job lined up, your income will hopefully increase by more than inflation over that period, so having a lower starting payment might be useful?

Good luck

R.

Robert_Sterling_3

dimbles wrote: »

I know it's an impossible question:

It isn't since you have asked it.

A possible answer is 3.25% above RBS Base Rate variable and I would go for that.

anotherpaul_2

Rafter wrote: »

You are taking a bet that the base rate on average will be lower than 5.15% over the period September 2009 to September 2012. Given that rates are expected to fall to 0.5% tomorrow I think this is a reasonable risk to take.

In fact, the average you're talking about should be weighted towards the start of the loan, when the capital is higher, which just makes the RBS loan even more attractive.

OP, you should confirm that the RBS base rate tracks the BoE rate before you make a final decision.

anotherpaul_2

For that matter, any idea what RBS count as a graduate. I graduated 9 years ago. Do you think they'd give me a loan on these terms? (I've got to get married soon and that's a really attractive rate!) :-)

dimbles

Thanks for your input. Thought I'd give you an update...

I went to RBS to apply for the variable loan (3.25% + RBS Base Rate) and after many many phone calls to the 'Personal Lending Unit' I still don't know if I'm eligible.

The problem is thus: I am still a student. I graduate in July, and start work in September, guaranteed. I spoke to a Grad Manager in NatWest, and he assured me that as long as I was guaranteed to finish university in July, and I had a contract proving my future income, getting the graduate loan was not a problem. Turns out that the definition of 'graduate' isn't clear across the RBS group.

So I've left it with the guy at RBS, and he's going to put my case to an underwriter for a manual override of the graduation certificate requirement. I should have an answer by Monday, so I'll let you know.

If I do get approved, it's a good bet: 3.75% is a cracking rate, especially when I'm paying off credit card debts about to revert to 14.9%


P.S. anotherpaul: I doubt you'd qualify (I know you need to have a graduate current account in order to get this rate, and I assume that only lasts for 3 years after graduation (like the 0% overdraft). That said, it's worth a try!

I've heard talk opinion that BBR is going to increase steadily to 6-7% over the next few years, just out of interest (no pun intended).

anotherpaul_2

dimbles wrote: »

P.S. anotherpaul: I doubt you'd qualify (I know you need to have a graduate current account in order to get this rate, and I assume that only lasts for 3 years after graduation (like the 0% overdraft). That said, it's worth a try!

Thanks. I wasn't being all that serious - I'm sure I don't qualify. :-)

dimbles wrote: »

I've heard talk opinion that BBR is going to increase steadily to 6-7% over the next few years, just out of interest (no pun intended).

I don't see it happening that quickly, but if it did... it depends how long you are planning to take the loan over, but it probably still works out cheaper than the fixed rate offer you mentioned.